ISAs & PEPs news
ISA changes will make saving easier
20 February, 2007
The tax-efficient Individual Savings Account (ISA) will become a permanent fixture on the savings and investment scene, following Gordon Brown’s pre-budget report in December 2006.
The Chancellor used the report to outline a series of changes aimed at simplifying the rules governing the savings scheme.
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From April 6 this year, Mini and Maxi labels will cease to exist and individuals will now be allowed to save in cash and stocks and shares.
Although Brown has not increased the current limit of £7000, he has guaranteed that it will remain at a level of at least £7,000.
However there will be more flexibility in that an individual will be able to save £1000 in cash and £6000 in stocks and shares.
Alasdair MacDougall, of Glasgow-based Accountants and Business Advisers, Martin Aitken & Co, believes the new system will allow savers to diversify their portfolios in a much simpler way.
He said: “The changes have been introduced to essentially streamline the whole system and you can now hold a cash ISA and a shares ISA with either the same or different providers.
“The words Mini and Maxi are no longer relevant although investors will now be held more responsible for ensuring that their overall contributions to both do not in total exceed the £7,000 limit.”
ISAs were created in 1999 to replace the TESSA and PEP.
By April 5 last year, more than 16million people in the UK had an ISA account, with £111billion invested in cash ISAs and a further £70billion in stocks and shares.
The new system will also allow individuals to transfer (unlimited) accumulated ISA cash into stocks and shares without affecting the annual investment limit.
“A saver with say, £30,000 accumulated in the cash component in previous tax years will be able to move some or all of it into a stocks and shares component, and still invest a further £7,000 into their ISA in the current tax year,” MacDougall explained.
“Unfortunately, you won’t be able to do it the other way round; existing PEP and ISA stocks and share holdings cannot be switched into a cash ISA.
“If you sell any stocks and share holdings, the cash has to be reinvested in the stock market quickly, as any interest accrued in a non-legitimate cash holding will be taxed at a flat rate of 20 per cent.”
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